Michael Porter’s theory is an industrial revolution theory, primarily based on vertically-integrated businesses. When it was formulated the only networks were Warren Buffet invests in businesses with a sustainable competitive advantage – good long-term investments
The areas that are most often overlooked are the attributes of the technology, the market proposition and the jobs that the customer is hiring the product for.
Starting with a new technology.First, the technology is analysed by its capabilities. These could, for instance, be patent claims. These capabilities are combined to create marketable attributes. Starting with a product or business model. The requirements of the current target market are identified. Competitors and substitutes are identified. The characteristics of the product and business model are mapped against competitors and substitutes to identify value created and sources of competitive advantage.
New Competitive Advantage
From Innovation to Competitive EdgeGetting the new-market product proposition right
The New Market Proposition Problem The low success rate of new products means that roughly 50% of the resources allocated to product development and introduction is wasted, either through cancellation or failing to achieve adequate returns1. For every four products that enter development, only one makes it to market. Conclusion: new product development is expensive and risky, A study in Harvard Business Review found that 86% of product launches were line enhancements and only 14% were new market innovations. The line enhancements generated 62% of the total revenue and 39% of total profit in the study, while the new market innovations generated 38% of the revenue and 61% of the profit. Conclusion: but it‟s worth doing for the growth and profit.. In a study of 229 electronics manufacturers‟ innovation failures by Stanford, 16% of executives cited marketing, 13% cited insufficient customer benefit and 7% cited difficulty of market development. Conclusion: ..and some of the problems can be fixed – but how? By understanding how to get a competitive advantage 1. “3,000 Raw Ideas = 1 Commercial Success!”, Stevens and Burley, Research Technology Management, 1997
Competitive Advantage – what’s changed since 1980?Updating competition theory for the information age Competitive advantage is the strategic advantage that one company has over its competitors that allow it to make above-average returns Michael Porter‟s theory of Competitive Advantage is over 30 years old • The Web has led to complex global value chains Value System • All parts of the chain must be satisfied for a new product to succeed Fragmentation • Propositions must include answers for more of the value system • The only widespread networks in 1980 were telephone networks Network Effects • Network effects lead to new competitive advantages • Networks can be natural monopolies •The theory of disruptive innovation gives insights into business failure Disruption •Disruptive innovation offers analytical tools for all types of innovation •Disruption is difficult to spot in complex value chains • There are new, lightweight business models based on domain expertise New Business • Many business models have barriers to entry based on speed to market Models • There has been a rapid shift to network and service-based business models
Reducing New Market Product Failure RiskBy targeting competitive advantage in the market .. for, which requires a .. .. whose attributes lead to.. ..who need a job ..which require a.. done, which they.. ..with specific.. ..targeting particular..
Designing propositions for competitive advantageThe methodology • Analyse capabilities to identify differentiating attributes Technology • Map attributes to applications using good-enough / not-good-enough • Create market-specific product variants that would value attributes Products • Analyse competition, including substitutes, to confirm differentiators • Determine whether products fit the RPV framework (disruptive/non disruptive) Proposition • Ensure the product delivery capability is in place •Make sure the value system is better off (disruptive/non-disruptive) Markets •Analyse potential competitor response using RPV framework • Determine what jobs the customer is employing the product to do Customers • Develop the proposition around the jobs to be done • Make sure there is a RoI for all in value system Business Model • Look for and create barriers to entry • Create marketing material targeting vertical advantages
A simplified example of attribute-based product differentiation Room Temperature Maser • The individual capabilities of the new technology are categorisedCharacteristic Attribute Application • The capabilities are combined in Size Portability different ways, and with other Mode Pulse ,but technologies, to develop CW shortly marketable attributes Operating SatelliteTemperature phone Operating • The attributes are matched to Bandwidth market requirements – if an Operating Tunability attribute is not good enough, Frequency 1.45GHz only when will it be good enough? Power 500 Output • Potential markets are assessed Medical Gain High Gain Scanning for size, value and competitive Thermal Low Noise offerings noise <140mK Stability High stability • A differentiated product offering Good enough is constructed and market- £200-£500 Cost per unit est. Not good enough tested
Case Study 1: Security Protocol DeveloperTechnology The company had developed a novel fast secure assured-delivery telecoms protocol to Analysis of the technology showed that there were several widely-applicable inventions replace TCP and IPSEC/SSL as internet which warranted protection. Patents were protocols because of poor performance. filed.Markets The company saw its target market as the large online retailers and commerce I showed that this was not a job that needed doing due to other higher consumer priorities. businesses that rely on security technologies I identified other, larger markets including like IPSEC and SSL. finance, satellite, media and „big data‟ which would value particular attributes.Products The company saw its primary product as a secure end-to-end VPN technology The company did not have the resources to take a large-scale VPN product to market. Combining the technology capabilities differently allowed products to be created that fitted the resources of the company, in particular a custom chip.Proposition The company had no deliverable market proposition I arranged an independent test facility to provide proof of performance. I created target propositions for each market to develop product against.Marketing The company had no sales or service capability I identified the routes to market that required the least resources. This also offered much earlier revenues. I identified appropriate channels and channel approachCustomers The company had one prospective customer, funded by the same investor, with specialist I identified several prospects in target markets and tested the propositions against needs in a market of one. jobs to be done.Result: Company closed additional funding using my report and is close to first sale
Case Study 2: Waste to Energy TechnologyTechnology The company has developed a high efficiency W2E technology based on a cupola furnace Analysis of the changing waste market showed that all current technologies require gasifier. subsidy, but this plant did not. This gives a competitive advantage as waste becomes a valued resource.Markets The company saw its target market as waste companies as an alternative to landfill. It was Large waste companies are locked into a contract-based value system which prevents unable to sell the technology. adoption of technologies which are not government-approved. A new value system was required targeting commercial wastes. I established a new company to do this.Products The company was focused on one part of the whole process (gasifying waste) and had not The efficiency of the technology was improved further by a change of power-generation optimised to meet the needs of the customer, technology. We identified a suitable vendor the electricity industry. and designed a plant capable of delivering electricity with a high availability.Proposition The company did not have the capability to assemble the complex value system required We formed a JV of three companies, including a commercial waste operator with land. We to deliver a complete solution brought in the additional resources required to satisfy finance requirements.Marketing The company had no sales or service capability Developed a financial model showing an IRR of over 25% without subsidy. This attracted sufficient financial interest to proceed to the next stageCustomers The company had no prospective customers We have identified several prospects in overseas markets who are waiting for the first plant to begin operationResult: JV formed which is arranging planning permission on first site.